Fall Of 2 Seattle Office Developers Sign Of Times

SEATTLE — In Seattle and around the country, half-empty high-rises have become symbols of overdevelopment, hollow monuments to those who took big risks and lost.

Much closer to the ground, though, there is another example of the real-estate losses hitting this city: the blighted block between Second and Third Avenues and Pike and Union Streets.

The block once was the center of grand plans for a civic theater and office tower. Seven years later, it is a collection of boarded-up and rundown buildings exacting a high price from the two developers who had hoped to rebuild it.

Dick Clotfelter and Gary Carpenter were unable to finance the project or pay their bills and had to file for Chapter 11 bankruptcy protection for the Third & Pike Limited Partnership.

Most recently, a creditor in the 2-year-old case has taken ownership of their homes-one a waterfront manor and the other overlooking Lake Washington. The men also have negotiated to sell other undisclosed assets to the creditor after losing all the downtown block except a parking garage on one corner.

The block has been seized piece by piece by those who had extended credit to Clotfelter and Carpenter-a bank, an insurance company, a property trust. Some of the lots have quietly been placed for sale.

It will be years before the block is rebuilt.

For Clotfelter and Carpenter, known for their Pacific First Centre and Century Square projects downtown, the case has brought personal pain and a bitter exit from the development business.

Clotfelter, a former leasing agent, and Carpenter, an accountant, blame others and say they have negotiated an end to their bankruptcy case.

But the case remains open while creditors challenge millions of dollars in payments made. Not a single creditor has received full payment. The majority, including architects, engineers and others, have received no money. Clotfelter and Carpenter listed $25 million in debt to creditors in the case, including the original $12 million loan from First Interstate.

What went wrong? Timing is partly to blame. Like the stock investor who buys before a crash, Clotfelter and Carpenter invested in a project before the commercial real-estate market imploded.

After buying up most of the block in the early 1980s, they borrowed $12 million in 1985 to build a 34-story office tower.

As with most developers, Clotfelter and Carpenter agreed to a quick payoff of their initial loan, with plans for a longer-term loan after construction began.

Clotfelter and Carpenter`s $12 million loan would come due in late 1986. While awaiting city development permits, they negotiated extensions to 1987.

Meanwhile, several other office towers were being developed and built. By the time Clotfelter and Carpenter sought a long-term loan, Seattle was headed toward an oversupply of office space, and lenders were reluctant to finance another project.

Clotfelter and Carpenter have said First Interstate backed out of a commitment to provide the long-term loan. But the bank, through its lawyers, said it never made a binding commitment.

Other developers weren`t the only problem. The pair competed against themselves.

One office tower that competed against the ACT block, named for the planned theater, was the 44-story Pacific First Centre, a $185 million project developed by Clotfelter and Carpenter in the late 1980s under another partnership.

They handled Pacific First and the ACT block simultaneously, negotiating extensions on the $12 million ACT-block loan while they proceeded with the other high-rise.

Pacific First subsequently ran into its own financial trouble because of a lack of long-term financing. A lender took the building`s deed in lieu of foreclosure at one point, but returned it after Clotfelter and Carpenter negotiated a new loan with their Japanese partners in the building.

When the developers couldn`t find a long-term loan for the ACT-block project, they began missing payments on the $12 million. The lender, First Interstate Mortgage Co., sued in 1988 to foreclose on part of the block.

Two years of negotiations with First Interstate produced no resolution, and in 1990 Clotfelter and Carpenter put the partnership into Chapter 11.

At one point, the developers asked the city to switch their development permit from an office tower to a hotel, hoping they could find financing for a different use. But the city said no.

The bankruptcy protection didn`t last long. First Interstate and another creditor, Aetna Life Insurance Co., received court permission to collect their debts. First Interstate foreclosed on one portion of the block last year, and Aetna on another portion in May.

This summer, the cuts reached deeper. First Interstate, now owed $13 million in principal and interest, sold its claim for the money to Thomas Hazelrigg.

A Hazelrigg company, T.R. Financial Services, obtained a court order to seize the developers` personal assets, along with income from any of their 19 business partnerships, including Prescott Inc., the business they still use to run the Pacific First Centre.

In August, Clotfelter and Carpenter negotiated a deal with Hazelrigg to settle the $13 million debt. Neither side will discuss the deal; Clotfelter and Carpenter said they signed an agreement to keep the specifics secret.

Title reports show they transferred the deeds to their houses in August to Properties Four, another Hazelrigg company.

Their toughest critics say Clotfelter and Carpenter made the mistake of holding onto the ACT block too long once they ran into trouble, because of stubbornness or even arrogance.